Price of Gold Fundamental Weekly Forecast – Weaker Dollar Will Drive Up Demand for Dollar-Denominated Gold

Gold finished higher for week with the market being saved on Friday by a sharp break in the U.S. Dollar. The greenback fell in reaction to a report that the U.S. Federal Reserve planned some dovish changes to monetary policy while leaving interest rates unchanged. Throughout the week, gold was pressured by weak economic data from China, a bearish outlook on the global economy and dovish forecasts from central banks.

For the week, April Comex gold settled at $1304.20, up $15.30 or +1.19%. All of the week’s gains were generated by Friday’s $18.30 rise.

Fueling the sell-off in the U.S. Dollar was a report from The Wall Street Journal. According to the WSJ, Federal Reserve officials are nearing a decision on when to end the reduction of the Treasury bonds it is holding on its balance sheet, a key consideration for investors watching how far the central bank will go in tightening monetary policy. A looser policy is bearish for the U.S. Dollar and bullish for dollar-denominated gold.

It’s not a given, just speculation at this time. However, The WSJ went on to say that further consideration of when to end the roll-off is likely to come up at the next Federal Open Market Committee meeting on January 30.

“A lot of the heavy lifting has been done,” Kansas City Fed President Esther George told The Wall Street Journal in a January 15 interview. “We’re waiting for the committee to be satisfied that they have reached sufficient understanding of what all the moving pieces are.”

Earlier in the week, gold was pressured after China reported weak Q4 GDP data and the International Monetary Fund (IMF) cut its forecasts for the world economy in 2019 and 2020.

The IMF cut its growth forecasts for 2019 and 2020 because of weakness in Europe and some emerging markets. It also said failure to resolve trade tensions could further destabilize the global economy.

Gold was further weakened by dovish monetary policy statements and remarks from the Bank of Japan and the European Central Bank.

Forecast

This week, gold traders will get the opportunity to react to the Fed’s interest rate decision and monetary policy statement. Central bank policymakers are widely expected to leave its benchmark interest rate unchanged. Additionally, it may announce it is considering ending its policy to reduce its balance sheet. Both moves are dovish because they point towards an easing of monetary policy. This could drive the U.S. Dollar lower, making dollar-denominated gold a more attractive asset.

On Friday, traders will be watching the U.S. Non-Farm Payrolls report. It is expected to show the economy added 165K jobs in January. The unemployment rate could drop to 3.8% and Average Hourly Earnings are expected to come in at 0.3%.

Additional reports are Conference Board Consumer Confidence and ISM Manufacturing PMI.

The wildcard is the impact of the opening of the government and the start of high level trade talks between U.S. and Chinese officials on January 30-31.